by James C. Moore
I’ve had a running joke with my riding buddies when I am out on a trip. Every time a Harley pulls into a lot or rolls past, I ask the rhetorical question: “Wonder where he practices medicine?”
My pals have witty comebacks. “Hey, he could be a lawyer.”
“Or a dentist. Maybe an accountant? Surely, he manages a nice portfolio of investments.”
It’s probably unfair to think of Harley in those terms. But it is not completely without foundation. Good jokes, of course, always have a germ of the truth. And the news just out that Harley-Davidson Inc’s sales are turning down even more might be revelatory of a business strategy that could never be sustained over the long term.
Which means they should have broadened their appeal beyond those of us who fit into the category of baby boomers. There’s no question that as we all reached better income and mid-life, a lot of us bought Harleys, the bikes we dreamed of when younger. But each year the price of the big bikes kept climbing, and more of the boomer market was being parsed off, which caused the Milwaukee company increasing financial pain.
Boomers are riding into the sunset, and many of them are doing it in RVs or SUVs, which prompts the sale of motorcycles. The resale market of Harleys appears glutted, (just check your local Craigslist), and that must be putting downward pressure on the price of the company’s new bikes while also reducing the addressable market of customers for the latest technology to roll off the line.
The iconic American motorcycle manufacturer has been dealing with a lot of economic dynamics, a few of which might have been foreseen. Boomers were always going away, and so was their income and savings and retirement funds. Harley had to spend time thinking about the future and how to sell bikes, didn’t they?
Millennials, unless they inherited their parents’ bank accounts, were never going to plop down the big dollars for big bikes. Plus, they don’t even seem that interested in motorized freedom. Teenagers, in the days of Boomers, couldn’t wait to get a driver’s license at age sixteen. In 2017, it hardly seems to matter that they own or can drive a car.
They end up not throwing a leg over motorcycles, either. And if they were to have such an interest, their increasing population, which is already estimated to be more than half the adult work force, they wouldn’t be spending $20-$25k on a motorcycle. The company came up with down market models in the 500 and 750cc engine platforms that are being marketed as “street” models, and entry level costs are very reasonable at $8,699. But margins on that product line are narrower and sales have to reach higher volumes to sustain the company’s current stock price.
Did Harley go after younger riders and cultivate them too late? Might feel that way to some shareholders. Should they have been in the market faster with “bar bikes” and scramblers and street models instead of investing so much technology and intellectual property in the new big twin the Milwaukee Eight? I am reminded of that time in the seventies when Detroit decided that Japan was being foolish trying to sell Americans small, fuel efficient cars. Motor City thought the future was always going to be muscle cars in the land of the free, and the Datsun B-210 and other economy vehicles kicked the butt of American steel.
Or maybe that’s not a fair analogy for Harley. Regardless, the company has economic issues and just announced it is cutting U.S. production in the second half of this year. And shares of its stock dropped 9 percent when the market opened July 19, 2017. Harley said it only expects to ship 241,000 to 246,000 bikes this year compared to the 262,221 it sent to dealers last year. Only a decade ago, the American bike manufacturer produced 350,000 bikes.
The stock analysts describe what’s happening to Harley as a “secular erosion” of the market. The translation is that the emerging and soon to be dominant demographic groups like Generation Y and Millennials just aren’t taking up motorcycling like the babies born after World War II. If anyone can explain why not, they might want to contact the bike manufacturers.
It’s kind of important to their futures.